July: Dovish Scandinavian central banks hit SEK and NOK

Main forecast changes

Following the surprisingly dovish action from the two Scandinavian central banks and the recent rally in both EUR/SEK and EUR/NOK, we have revised our targets for Scandi crosses.
We now target EUR/SEK at 9.40 in 1M ( was 9.00) reflecting that to some extent near-term upside risks in EUR/SEK can still be seen, even though we have emphasised that a thin July market has not been an argument for a weaker SEK historically. In three months’ time we expect the krona to have gained some momentum and see EUR/SEK at 9.20 (8.90). From a medium- to long-term perspective, PPP, current account, public finances, growth outlook etc unambiguously suggest that the krona will appreciate over time. However, we also acknowledge that rate differentials have become less SEK supportive, or even SEK negative (versus, for example, NOK). We have therefore also raised our 6M and 12M targets and now project a gradual decline in EUR/SEK to 9.00 (8.80) and 8.80 (8.70) in six- and 12-months’ time respectively.
Over the past month, the NOK has been the biggest loser among G10 and consequently we have revised up our short-term EUR/NOK targets. We now target EUR/NOK at 8.40 in 1M (8.20) and 8.20 in 3M (8.00). In general we do not expect the Norwegian economy to weaken further and trigger a rate cut from Norges Bank. Hence, in the medium to long term we still expect EUR/NOK to edge lower towards 7.85 in 12M (unchanged).
We have made minor adjustments to our EMEA FX forecast. We have changed our three-month forecast for the PLN and the HUF in a slightly more negative direction due to recent weakness, mostly reflecting uncertainty about Hungarian banking legislation. Overall, we maintain a fairly positive view on the forint on a 6-12 month horizon and we have left our HUF forecast over this horizon unchanged. We forecast EUR/HUF at 315, 305, 305 in three, six and 12 months respectively and we forecast EUR/PLN at 4.10, 4.10 and 4.15 in three, six and 12 months respectively.

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